BILL WELLS: DEPARTMENT FOR BUSINESS, INNOVATION & SKILLS.

WORK AND PENSIONS SELECT COMMITTEE:Labour market seminar: 26TH February:‘Trends in part-time working and short-term employment contracts and the impacts on benefit claims.’ BILL WELLS: DEPARTMENT FOR BUSINESS, INNOVATION & SKILLS.

STRUCTURE OF THEUK BENEFIT SYSTEM: • The UK Beveridgean system provides a universal basic benefit floor that is more comprehensive than most other countries but less generous. • And, unusually, not only are the main rates low but they are also flat rate and indefinite in duration. • Consequently, work generally pays in the UK with over 70% of all working age benefit recipients having a main rate below £100 p.w. whereas fewer than 10% of employees earn less than £100 p.w. • The situation is complicated if people are also eligible for housing benefit as the rules are different and the amount received does not relate to the individual. • People on tax credits and, also, eventually Universal Credit are more likely to be on housing benefit.

The UK’s Beveridgean welfare system delivers a relatively universal welfare state including a comprehensive benefit floor at around 40% of average income…

…but UK main rates of benefits are low by international standards. They are, however, universal and, unusually, flat-rate and indefinite.

The main JSA benefit rate is around 12% of mean full time earnings and around 17% of overall median earnings. So, if that benefit is all someone receives they are already very likely to be better off in work- particularly given the raising of the income tax allowance, eventually to £10,000 p.a.…

…and whilst there are differences within and between the different working age benefit rates it remains true that only around 5% of people receive a main rate of benefits of more than £150 per week.

…with only around 15% of employees earning less that £150 p.w. and less than 10% earning less than £100 p.w.

However, for people receiving housing benefit then replacement rates are not as low by international standards and out of work income is higher and ‘Making Work Pay’ is more difficult – both at the start and throughout the claim…

…also the structure of housing benefit is more complex than the main benefit rates. It is based not on individual circumstances but on the rent; is not always flat-rate; and it can be paid in and out of work. This complexity does not help the ‘Making Work Pay’ agenda…

…and with a supplement to the main benefit rate of usually around £50-£125 p. w. it is generally people in receipt of housing benefit that need income supplements in the form of tax credits whilst in work.

STRUCTURE OF EMPLOYMENT • The UK’s ‘light and even’ employment regulation system sets universal basic minimum standards to prevent exploitation whilst allowing workers and employers the freedom to set the terms & conditions that suit them both. • This delivers a system which is both dynamic – there is a lot of voluntary turnover – and diverse – there are a very wide range of types and patterns of employment. • The system has helped to deliver both a high employment rate and also high for all age and sex groups… • …and levels of satisfaction with all forms and types of work in the UK tends to be higher than in most other countries.

In terms of employment the UK’s ‘light and even’ employment regulation regime enables workers to move in and out of work easily. Consequently, there are always vacancies coming up as part of the high natural turnover in the UK…

…and, in general, workers tend to find a job that tends to suit them. So, for example, the UK has relatively few workers who are in forms of work that are generally not well regarded by the people in them – here temporary work…

In addition, as there are few legislative restrictions on types of work in the UK it has a greater range in work patterns – for example, on hours. This diversity means that when workers look for work they have more opportunities to find a job that suits their personal circumstances…

This wider range of opportunities provided by the UK’s ‘light and even’ employment regulation system has helped to deliver not only a high overall employment rate but also generally higher rates for all age and sex groups (except the oldest)…

…but also UK workers tend to be more satisfied with their circumstances. For example, the proportion of involuntary part-timers is low internationally suggesting that workers are more likely to find a type of job that suits both them and their employer...

EMPLOYMENT PERFORMANCE DURING AND SINCE THE RECESSION. • The UK’s ‘light and even’ employment regulation has also helped the UK to show resilience during and since the recession. • Employment levels are already above pre-recessionary levels despite GDP not having reached its previous peak… • …and this is not because of labour hoarding. Average hours worked are as high as they were when employment peaked in early 2008. • In fact, for adults, employment has grown even faster than population. The employment rates for age groups 25-64 and 65 & over are already above the pre-recessionary levels of 2008… • …whilst for young people aged under 25 leaving education there remains a major problem making the transition into work or further/ higher education… • …whilst, for youngsters who have made the transition, worklessness is already close to pre-recessionary levels.

Employment is above its pre-recessionary peak. And as total hours have growth even faster there is, therefore, little sign of labour hoarding due to involuntary part time working. Average hours are now at or above 2008 levels…

The UK’s ‘light and even’ employment regulation has also helped the UK to show resilience during and since the recession. Those aged 25-64 and 65 & over are already above pre-recessionary levels…[But as there has been a population shift towards those aged 65 & over the overall employment rate for all aged 25 & over are not quite above pre-recessionary levels.]

The recession stimulated more young people to stay in education and the higher staying on rates have been maintained since. This tends to reduce the overall employment rate because the employment rate for people in full time education are lower than for those who do not.

However, a major problem remains for young people leaving education. They are taking longer when they leave education to either move into further/higher education or to move into work. Their experience differs from that of young people who have successfully entered the labour market – and had a job. Amongst this group the numbers are already close to pre-recessionary lows.

REASONS FOR THE UK’S GOOD EMPLOYMENT PERFORMANCE: DEMAND OR SUPPLY? • Increased hiring is the main cause of the UK’s good employment performance as workers have taken up ‘Second Choice’ jobs rather than remain unemployed. • During the recession the fall in labour demand led to both involuntary job losses and some short time working. However, the scale of the job losses was much greater than the hours reduction. • As demand has picked up both of these aspects – job losses and short-time working - have improved and are now moving towards pre-recessionary levels. • However, there has also been a substantial rise in ‘Second Choice’ jobs - part timers who would prefer to work full-time and self employed.

Involuntary job losses rather than hours reductions was the main response to the fall in labour demand during the recession. However, subsequently, redundancies and other involuntary separations have fallen back and total separations are now at pre-recessionary levels…

…and although there was some rise in short-time working/lay-offs during the recession it was small relative to the fall in employment. Since 2010, the hours reductions due to economic reasons has been falling back towards pre-recessionary levels.

The fall in labour demand in the recession is replicated by the fall in the numbers who remained in their job. Again, since 2010 the numbers staying in work have picked up and they are also now above pre-recessionary levels…

…and the type of jobs that fell during the recession - both (voluntary) part time workers and, particularly, full-time employees - are those most associated with falls in labour demand. Although there has been strong growth recently, the job losses have not been recouped.

A rise in hiring is the main reason for the recent good employment performance. This rise was concentrated amongst people moving from ILO unemployment into a job. As this was during a period of low/no growth it suggests a supply rather than a demand effect…

…but the recession seems to have increased the number of workers willing to take up ‘Second Choice’ vacancies rather than remain unemployed. It seems to have largely been their choice rather than having been imposed on them by their businesses…

…and some of the growth in the numbers of part-timers who would like to work full-time has been amongst people who are part-time self employed workers . Some of this may be because they took up these jobs as they were unable to get a job as a full time employee

INTERACTION BETWEEN BENEFIT SYSTEM AND PEOPLE WORKING SHORT HOURS OR WORKING PART-TIME WHEN THEY WISH TO WORK FULL-TIME. • The employment growth amongst part time workers who wanted to work full time has mostly been amongst workers working 16 hours or more – ensuring a minimum weekly wage of around £100 p. w. . • This together with the growth in self-employment and, more recently, full-time employees, may generally mean that most people are better off in work than on benefits. • However, this is not the same as saying that they regard their current work and the resulting income as satisfactory.

Fewer than 10% of employment usually work less than 16 hours per week. At minimum wage rates 16 hours or more ensures a minimum of around £100 p.w. – which is higher than benefit payments to more than 70% of benefit recipients on the main rates of benefits…

…and not only is the growth in employment over more than two decades has been amongst workers who usually work more than 16 hours per week…

…and the growth in the numbers of part-timers who would prefer to work full-time since the recession has been amongst workers who usually work at least 16 hours per week…

…and part time workers who want more work generally want a lot more work. This suggests that the issue is not the interaction with the benefit system that is of most importance but raising their income significantly.

INTERACTION BETWEEN BENEFIT SYSTEM AND PEOPLE WORKING VARIABLE HOURS – INCLUDING ZERO HOURS CONTRACTS. • Variable hours of work – if they lead to variable income – can cause issues when they interact with the benefit system. Workers with variable hours include those on zero hours contracts but are not exclusive to this form of contract. • Zero hours contracts and other forms of variable hours contracts are more likely to provide opportunities to workers who are probably not on benefits – students and 3rd or 4th earners in a household… • …however, there are also likely to be more problems with zero hours and other variable hours contracts. More of them would prefer to work longer and more are actively looking. But not many more of them actually have a second job.

In terms of zero hours contracts it is the variability of the hours (and pay) on offer which is important rather than the precise nature of the contracts themselves. For example, ONS have indicated that the apparent doubling of such contracts in the last year is due, at least in part to publicity raising awareness of this type of contract…

…and it is very rare that people on zero hours contracts have usual hours that are zero.

In addition, it is not just zero hours contracts where actual hours worked differ from usual hours. However, workers on zero hours are more likely to work fewer actual hours than usual hours…

…and workers on zero hours contracts are more likely to work zero hours and fewer than 15 hours per week. ..

…but, because zero hours contracts are a very small part of overall employment zero hours/short hours are much more prevalent amongst workers who are not on zero hours contracts than amongst workers who are…

In the labour market as a whole the numbers working less than usual hours because employers vary their hours have fallen over time. However, within this total, there has been a growth of around 100-150 thousand in the number working zero hours.

Variable hours contracts – including zero hours contracts – can provide opportunities for workers who are unlikely to be on benefits. For example, a quarter of zero hours contracts are taken up by students compared to less than 10% of workers not on zero hours contracts…

…also, people on zero hours contracts are also slightly more likely to be in households where two or more other people are working - households which are unlikely to be on benefits.

However, there are also more signs of potential problems in zero hours contracts. There are more likely to want to work or need more hours - 37% compared to 13% - including 16% who are actively looking…

…and 13% of the ZHC contracts with zero hours report in the LFS that they are temporarily away from work [the category we think is the most likely to contain any exploitation.]

…and not many people on zero hours contracts have succeeded in getting a second job – although it is greater than other workers. We do not, however, know whether this is due to restrictions associated with exclusivity contracts.

CONCLUSIONS • The UK’s labour market system of benefits, employment regulation and National Minimum Wage are all structured around providing universal basic minimum standards. • And this combined with a long standing traditions of allowing workers and employers to determine their own terms & conditions is currently delivering a system where the majority of people are better off in work than on benefits; employment overall and for all age groups is high by international standards; and the employment record during and since the recession has been good. • However, there is still more to do. Including:- • Helping young people make the transition from education to work more easily and quickly; and • there are a significant number who would prefer to work more hours both amongst those who usually work more than 16 hours a week – who have taken up a ‘Second Choice’ job rather than stay unemployed; • and amongst workers whose variable hours – including zero hours contracts – mean that their hours are low or they are not working.

BILL WELLS: DEPARTMENT FOR BUSINESS, INNOVATION & SKILLS.